Credit History and Auto Loans

Your Credit History Affects Car Loans

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As with most credit matters, when you are looking to get a car loan, your credit history information will determine, in large part, what kind of loan you'll be able to get.

When you are considering buying a home, a car, a boat or another big-ticket item, your credit history will dictate how much you can borrow, what your interest rate will be, how fast you'll be able to get a loan, and perhaps most importantly, how many hassles you'll have to endure to get the home or car you want. Fairly or unfairly, you are what your credit history says you are. So if you haven't looked at your credit report lately, there's no time like the present.

Will a bad credit history ruin my chances of getting a car loan?

"Bad credit" is a relative term, but if your credit score dips below 600, your chances of getting a lower auto loan rate could be compromised. The good news, though, is that you can still get a car loan even if you've had credit difficulties. That doesn't mean that you should be careless with your credit — consistently making bill payments on time is one of the best ways to maintain a solid credit history. But there are other ways to keep track of your spending and increase your chances for a reasonable car loan.

For example, as with all things, it's important to keep your options open. Since it's very unlikely that you'll be able to pay cash for a car — especially a new one — you need to have a payment plan. Depending on your credit and your particular payment needs, you can buy or lease a car and weigh the pros and cons of each before making a decision.

How do I know which type of auto loan is best for me? has created an online calculator that lets you compare buying and leasing — taking into consideration such things as the depreciation in value of each car, the capitalized cost reduction (down payments) and how long you want to own or "borrow" (lease) the car.

Before you start experimenting with the car buy vs. lease calculator, though, you'll need to do some homework. Make sure you know how much you'll be able to put down (the amount of the down payment you can pay to a car dealer or independent owner), the manufacturer's suggested retail price ("MSRP") and what auto loan rate is being offered.

Equally important, and not to be forgotten, is your overall credit history. If, for example, you want a fully-loaded sports car, a bad or even a marginal credit history is unlikely to deliver you the loan rates you want — or at least those rates that will allow you to cover the rest of your overall budget. Beware of credit killers like home foreclosures and bankruptcy. While it isn't impossible to recover from these sorts of credit difficulties, remember that mantra, "You are what your credit history says you are." With the time it takes for you to recover from those credit difficulties, getting the right car loan may very well be the least of your worries.

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